Maybe it's a client, or senior management of the company. They've passed over the important increase in display advertising again. They've cut the budget for the website redesign. Whatever it is, you scream (always in private, in a locked room) under your breath: are they going mad? It just makes you want to pull your hair out!

I'm like you. It's a given that other people are always wrong about things like this, and you and I are right. They're nuts.

But let's pretend just the opposite, to see if we can learn something.

With so many budgetary priorities facing marketing departments (and companies who don't even have marketing departments, but should have), it's unsurprising that not every "good to do" advertising method – even those with measurable ROI – can be launched or budgeted for all at once.

That leaves a lot of room for complaining in our industry. SEOs, PPC gurus, social media experts, usability and conversion experts, strategy agencies, Web app programmers, and many others often complain that companies are foolishly underinvesting in their area, while overspending somewhere else. Can they all be right? Probably not. But it is a given that companies are often making foolish decisions, especially when entering uncharted waters.

The key is to get to the bottom of these decisions. What makes them tick? Do different kinds of companies, and different decision-makers, see things differently?

A central argument of authors like Mark Stevens ("Your Marketing Sucks") seems to be that stupid people in stupid, traditional, slow-moving companies get caught up in the idea of "spending the marketing budget," and as a result, too often run out of budget when they should be spending more on high-return marketing channels, or squander perfectly good budgets on useless, wasteful campaigns. The implied alternative – and many performance-oriented online marketers agree – is to rationally focus on the ROI you're getting from measurable channels.

Does that sound familiar? Around the water cooler, everyone's always smarter than those straw man companies. Heads shake. We'd do it better if we were in charge.

Sounds nice on the surface, but in fact, companies of nearly every size must avoid swinging too far in that direction, because there really is some logic to benchmarking your aggregate budget for certain expenditures like IT and marketing against comparable firms in your sector. The trepidation people feel is real, so that's why some analysts and senior managers take that responsibility out of people's hands. Like it or not, sometimes you have to think ahead, think twice, hold your breath, and show courage in investing before it "feels right" in terms of pure ROI – even if it is seen as a high-ROI channel by others who have tried it before.

(Preview of my own take on it: out of the pool of your aggregate budget for all marketing related investments, you'll have a mix of several quite distinct initiatives, allocating a percentage of your total spend to each; the mix may include activities that do not have measurable ROI, but instead do something else. The biggest form of insanity going right now seems to be very common: companies that do not even consider informally that they will be setting or allocating a budget, so they wind up with 90 percent or more of their budget devoted to one area, or simply do not budget at all for several mission-critical pillars of their program.)

Economists referring to the broader economy refer to this concept as "social overhead capital" – things like schools, parks, roads, railways, and airports. Taking the close-up view, it's extremely costly to build an airport. Looking at things from the perspective of an entire society, the failure to build airports means, well, a lack of air travel. Call it basic infrastructure, if you will. Someone needs to plan.

So back to private companies, and making decisions within them or on their behalf. A lot of us have rough and ready opinions on the value of some of the core marketing and advertising opportunities available to a given company at a given time. We scream internally at those crazy OPMADs.

There are at least two main hurdles to looking at the issues more insightfully:

The change purse mentality. Too many people inject biases from personal finance into key business strategies. At home, it doesn't make sense to overinvest in your cable service or expensive vacations, assuming you know your family and they're not about to walk out on you for cutting a few corners. Your retirement income will likely be higher if you're just plain "cheap." At work, however, a marble foyer might be needed to retain clients; better phone systems might be needed for efficiencies in customer response; certain perks might lower employee turnover. Also: even if you're a shareholder, it's not your money, it's a company. Pinching pennies is important in most businesses, but not as a default option in all areas of expenditure. A lack of rational investments in a company's future can kill a company's growth, not save it.

Faith in rational modeling by others. On the surface, we're quick to badmouth a client's or a manager's "crazy" decisions. Even while we do this, we vastly underestimate just how irrationally most people think about decisions most of the time. That's because (even in spite of ourselves), we assume that "companies" and "people" in the corporate world often stick to the home economicus model of seeking "utility" whenever possible. But Nobel prize winner Herbert Simon, and those who follow him (behavioral economics, and cousins of that discipline), have all but proven that even intelligent, professionally-trained people come with their own wildly distorted reality fields. Among the perspectives that emerged in "post-rationality" research: organizational leaders often make decisions based on what's most apparent to them literally in a physical sense: who they bump into in the hallway; who was a squeaky wheel in a meeting while their counterpart was home sick. These models of decision often trump "process."

Simon politely called this "bounded rationality," but as his descendants have probed further in behavior experiments, we're so prone to behaviors that diverge so far from any classical concept of reality, it's hard to know where to begin. One common insult is to refer to an act as "gambling" or "betting." In fact, gambling or betting, if done well, is highly rational. People usually aren't. Even when you suspect someone is making a bad decision in budgeting, or even a "crazy" one, you may pay them the compliment of secretly thinking they're behaving too rationally or coldly and not "believing in the project." Often, it's not that. They're nowhere close to rational.

It's worth looking at examples of this in current literature – most usefully, check out William Poundstone, "Priceless: The Hidden Psychology of Value." In the sections on wagering and probability exercises, we need to begin with the fact that "expected value" is in most circumstances the best guide to how to bet or choose in making a decision. But even in canned environments, people diverge from rational behavior simply based on how games and choices are framed. Many people are impressed by big payouts, so they bet more on longshots with high absolute values for winning. Others see an easy victory with no risk and pursue that, while ignoring a much less likely, but vastly higher payout avenue that also comes with no risk. When it comes to investing, allocation, and wagering decisions, nature didn't issue us a perfect compass appropriate to our modern environments and corporate goals.

Even if people could confine their foolishness to making better bets when they are gambling, and admitting that gambling is what they're doing, they'd be doing a lot better.

So, it's sort of weird. On one hand, for the sake of our egos, we're prone to routinely, under our breath, calling other people stupid, and old-fashioned, and clueless, and such, all the time. But we're even doing a bad job of that! Some OPMAD's (other people's marketing allocation decisions) are bang-on sensible. In other cases, the OPMAD's are off-the-charts wrong. Is there a way to make a firmer case against insane OPMAD's, beyond merely lobbying unrealistically for everything at once, or for our own sub-discipline of marketing?

In marketing allocation decisions, we routinely mischaracterize and fail to pay adequate homage to the logic behind other people's marketing decisions. That's great for our own egos, of course. But it's worth drilling down to see if there is anything that we can identify that is truly useless, so we can rail against it on a firmer foundation. And maybe we should give other budget items a second look. In other words, keep the baby (or babies); out with bathwater.

I'll finish this thought thoroughly in two weeks, in a column entitled Advertising, Betting, Guessing, and Signalling.

Want to learn more? Attend ClickZ Live New York March 30 - April 1. With over 15 years' experience delivering industry-leading events, ClickZ Live brings together over 60 expert speakers to offer an action-packed, educationally-focused agenda covering all aspects of digital marketing. Register today!

ABOUT THE AUTHOR

Goodman is founder and President of Toronto-based Page Zero Media, a full-service marketing agency founded in 2000. Page Zero focuses on paid search campaigns as well as a variety of custom digital marketing programs. Clients include Direct Energy, Canon, MIT, BLR, and a host of others. He is also co-founder of Traffick.com, an award-winning industry commentary site; author of Winning Results with Google AdWords (McGraw-Hill, 2nd ed., 2008); and frequently quoted in the business press. In recent years he has acted as program chair for the SES Toronto conference and all told, has spoken or moderated at countless SES events since 2002. His spare time eccentricities include rollerblading without kneepads and naming his Japanese maples. Also in his spare time, he co-founded HomeStars, a consumer review site with aspirations to become "the TripAdvisor for home improvement." He lives in Toronto with his wife Carolyn.

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